For borrowers of federal student loans, the last few years have been peculiar. We still don’t know the exact day that the bills will commence after having been put on hold for close to three years.
In August, President Joe Biden declared that he would forgive up to $20,000 in debt for millions of borrowers. However, the plan was temporarily halted in federal court, and until the Supreme Court issues its final verdict on the program, the public won’t know if they will receive the promised assistance.
Experts advise that borrowers can still make some prudent financial decisions in the interim.
Make the most of any extra income
In light of recent news warning of a potential recession and an increase in layoffs, experts advise trying to save the money you would typically pay each month toward your student debt.
It’s worth shopping around for the best offer as some banks and online savings accounts have increased their interest rates. Simply make sure that any account where you deposit your funds is FDIC insured, which will protect your deposit up to $250,000 from loss.
Additionally, experts suggest that even though interest rates on federal student loans are zero, it’s a good time to move on with repaying more expensive debt. Currently, credit card interest rates are above 19% on average.
Consider making payments anyway
It may make sense to keep paying off your student loans even over the break if you have a sizable emergency fund and no credit card debt.
There is a significant caveat, though. You don’t want to keep making loan payments if you’re in a public service loan forgiveness program or an income-driven repayment plan.
Since those programs both result in forgiveness after a certain amount of time, any money you put toward your loans during the government’s payment pause just reduces the amount you’ll eventually get excused. This is because months during the payment pause still count as qualifying payments for those programs.
Evaluate your alternatives for when payments start again
Even though the start date for federal student loan bills is not yet definite, you should be ready for it whenever it happens.
Consider requesting an unemployment or economic hardship deferment if you’re unemployed or experiencing another financial difficulty. Due to the fact that interest is not accrued, those are the best methods for delaying your federal student loan payments.
However, if you’re not eligible for either, you can continue delaying your payments with a forbearance. Just keep in mind that if you forego payments, interest will accumulate and your balance will likely be higher when you resume making payments.
Check if refinancing could help
While the Biden administration thought on how to proceed with forgiveness, student loan holders shouldn’t refinance their debt with a private lender. Student loans that have been refinanced are not eligible for federal assistance.
Borrowers may wish to think about this alternative now that they know how much in debt cancellation is available, if the president’s program is upheld by the Supreme Court. You’re more likely to get a lower rate with a lender now than later because the Federal Reserve is predicted to keep raising interest rates.